The Bank of Portugal is in exclusive talks with China's Anbang Insurance Group Co on the sale of state-rescued Novo Banco, leaving two other bidders on the sidelines, sources said.
Two sources close to the bidding process told Reuters China's Fosun International and US fund Apollo Global Management had also made binding bids and could re-enter the race if talks with privately held Anbang fail.
Anbang declined to comment.
The Bank of Portugal said in a statement late on Wednesday it had started talks with one of the bidders in order to reach a final decision, but it did not name the companies. It added that the other two binding bids remain valid.
Novo Banco is the "good bank" carved out of Banco Espirito Santo (BES) after a 4.9 billion euro ($5.5 billion) state rescue last August of the country's then second-largest lender, which had crumbled under the weight of its founding family's debt.
Portuguese authorities hope to sell Novo Banco soon to recover the rescue funds, although it is so far unlikely to get the full amount back and the difference should be financed by the banking system via the so-called Bank Resolution Fund.
Earlier this month, the central bank received one improved bid for Novo Banco, which local media said was from Apollo. Yet Anbang's total offer, which includes a direct payment to the state and capitalization of Novo Banco, was still the largest, one of the sources said.
The price offered is the main criterion in a winning bid, but the authorities will also evaluate the business project, impact on competition and stability of the financial sector.
Sources said in June that the initial bids by the two Chinese competitors in April were in excess of 4 billion euros and were likely to have increased since.
But one of the sources said on Thursday that "the price to be paid for Novo Banco includes funds for a capital increase, which could be around 1 billion euros" to cover various contingencies stemming from lawsuits by creditors and investors who lost money at BES.